BrazilCEOs in China taking action to navigate disruptive environment
A growing number of Chinese top executives and business owners are taking action to address the challenges posed by the looming economic downturn and ongoing geopolitical crises.
The fourth annual Disruption Index by AlixPartners has revealed that in today’s ever-changing business landscape, CEOs recognize the need for their companies to adapt swiftly, but 87% are uncertain about how to initiate the process.
The survey, which polled over 600 CEOs and senior executives of Chinese companies, aimed to gauge the impact of various types of disruption. In light of a potential economic downturn and ongoing geopolitical turmoil, business leaders are keen on implementing measures to overcome these challenges.
Executives worldwide are acknowledging the potential threat of a global economic downturn. In fact, 82% expect a recession or economic downturn in their region to last more than a year, with over half expecting a severe or major impact on revenues from a recession.
In China, 77% of the surveyed executives in China anticipate a recession or economic downturn that could last for more than a year. This economic uncertainty has already resulted in layoffs at 17% of the companies surveyed, and 43% expect further staff reductions or hiring pauses in the year ahead.
Supply chains
As global pressures continue to mount, companies are reconsidering their manufacturing possibilities and supply chains, often encouraged by new government regulations and incentives. For example, the US alone has allocated $52 billion in subsidies to stimulate domestic semiconductor manufacturing, whilst also banning the export of advanced technologies to China.
“We will continue to see supply chain disruptions. I think they're here to stay because they emanate from all different sources,” said AlixPartners Managing Director David Garfield.
However, (drastically) cutting back supply chains with China seems unlikely in the short-term, as companies may risk losing their competitive advantage abroad. According to René Buck from Buck Consultants International, companies will at best shift to moving small bits and pieces of their operations to other Asian markets.
A reorganization of the global supply chain system isn’t necessarily the end to globalization as we know it. Currently, more than 70,000 US corporations do business in China. China has evolved from being solely a manufacturing powerhouse to a significant market for global corporations in nearly every industry.
Typically, companies in the West do not opt to offshore their production overnight since relocating manufacturing to a factory located thousands of miles away results in significant organizational changes across various departments.
While global CEOs are expecting an easing of supply chain issues in 2023 according to the AlixPartners survey, Chinese business leaders have a more cautious outlook. They recognize that the pandemic has exposed serious flaws in the global supply chain and that supply chain issues continue to pose a significant challenge for their companies.
As a result, Chinese CEOs are taking proactive measures to mitigate these risks and ensure the stability of their supply chains.
“China has been facing unprecedented disruptions from logistics to production all along the entire supply chain across all industries. Companies need to move decisively and seize all opportunities in the age of disruption as China continues on its road to economic recovery,” said Shiv Shivaraman, Asia Co-Leader at AlixPartners.
Stephen Dyer, Greater China Co-Leader at AlixPartners, added: “Inflationary and supply chain pressures pose increasing challenges for companies to protect and grow margins. The ability to prioritize operational superiority and collaboration between operations and commercial functions is critical to an organization’s success to emerge stronger in disruptive times.”
Disruption
From a regional perspective, most Asian CEOs reported lower levels of disruption. On the contrary, China-based CEOs reported a 12% increase that is likely caused by recent global events, such as the US – China trade war and the prolonged Covid-19 pandemic in the country, as well as changes within the country’s foreign and domestic economic policy.
Over the course of the current year, the Chinese Communist Party has shifted its focus from Covid-19 containment to economic growth due to public protests against the party's “dynamic zero-Covid” policy and a significant economic slowdown in 2022.
China’s official data reveals a growth rate of 3% in 2022, falling short of the official target of 5.5%. The government’s priority now is to restore economic growth, which is crucial for upholding the social contract with the Chinese people and competing with other powerhouses such as the United States.
Despite criticisms from top Chinese CEOs, Xi Jinping's control over the party’s hard levers of power remains strong. As Alibaba Group founder Jack Ma has pointed out, there are “risks that may actually threaten economic growth and innovation.”
To succeed in the constantly evolving business landscape, Chinese CEOs tend to have more responsibilities to juggle compared to their international counterparts, suggested the AlixPartners report. However, instead of viewing this as a burden, they should take it as an opportunity to reevaluate their company’s strategy and positioning.
The AlixPartners study found that a significant proportion of business leaders are proactively revamping their business model in response to the multitude of internal and external disruptions affecting their organizations. Close to 4 in 10 of CEOs are already undertaking this crucial task, while a staggering 99% acknowledge the need for change within the next three years.
Other concerns on the horizon
Alongside supply chain, geopolitics inflation and recession risks, the study also reveals other pressing concerns for business leaders. For instance, barriers to innovation are a major challenge, with 80% of respondents citing the board of directors as an impediment to deploying new technology and digital solutions, even though 96% believe that their company has the necessary resources to invest in such innovations.
In addition, the rapid pace of technological advancements is causing problems, with 65% of respondents stating that their company is struggling to keep up. Furthermore, there is a skills crisis looming, with 32% of Chinese business leaders expressing concern finding adequate talent in the foreseeable future.
Simon Freakley, the CEO of AlixPartners, said that great leaders recognize that they cannot possibly have all the answers to all the challenges and threats they face, nor do they even know all the questions. Instead, they assemble a team of top-tier talent to work together to find the questions and answers, and they continuously propel their organizations forward.
